Between the year 1990 and 2005 the high costs of the transfer union between Western and Eastern Germany depressed the “ill man of Europe”. High public spending resulted in a German current deficit until the year 2000.
Only the union among countries that were equally weak (resulting in EUR/USD of 0.78 US cents in 2001) made the common currency possible.
Cheap central bank interest-rates meant to heal Germany that contributes to only 30% of euro zone GDP. This caused excessive risk taking and housing bubbles in the euro periphery but also in countries like Denmark and the Netherlands.
It resulted in a transfer union from Germany to Southern Europe and France via current account imbalances from the year 1998 to 2007 but enriched also German and Spanish entrepreneurs and home builders. Higher home prices increased wealth in the periphery till the financial crisis and in France even until 2010.
Unfortunately it will end in a German overheating. Strikes have regularly erupted in the country for two years now, high salary increases exercise upwards pressure on inflation, that is currently only tamed by very slow global growth.
Ready-to-use capital in German banks and – the same as in the 1970s- capital inflows, will further heathen the atmosphere. Target2 imbalances might only diminish when some peripheral banks decide to pay back their LTRO loans, while current account surpluses with the US and Asia can further fuel the German boom.
We are sure that German inflation will touch 3% in a couple of years, while Italy and Spain will still exhibit low growth and relatively low price increases. Local and foreign investors will continue to pile into German real estate to secure their savings against the financial repression led by the Italian Draghi and the 65% GDP share of France, Southern members of the euro zone and even the Dutch that are fighting against their housing bust.
ECB interest rate will remain at too low levels possibly for two decades, from 1998 to around 2018. After a decade of risk-taking in the European periphery, it will guarantee another cycle of excesses, this time the money will flow in German stocks and properties and in the German proxy with more international exposure and easier linguistic access called Switzerland.
Thanks to the German competitiveness, far better than the slowly recovering United States, we judge that this real estate boom will last much longer than one decade – similar to the Norwegian and Australian booms. After the year 2020 and after more than one lost decade in Spain and Italy, the salary and current account re-adjustments among the euro zone members will be successful.
Then this German housing bubble will bust along with supply-side shocks caused by ageing, far higher salaries in the developing world and the elimination of positive globalization effects that lead to the emergence of these fatal imbalances before 2008.
From around 2016 or 2017 on, German inflation pressures might trigger a big debate about the introduction of a Northern Euro that in a then relatively risk-friendly environment (as opposed to 2011). The successful introduction of this new currency.might lead to the defeat of inflation and most risks of a real estate.
Y la historia se repite... los de arriba forman una burbuja explotan y las tornas vuelven a cambiar! Vean el grafico tubo o no tubo que ver el Euro en la fortaliza de las exportaciones de Alemania?